According to a survey of corporate counsel at large U.S. corporations reported by Law.com, nearly 70% of law departments expect their annual operating budget to be flat or decrease in 2017.
Let me say that again—nearly 70% of law departments expect that annual operating budget to be flat or decrease in 2017. And we know that, in the face of this challenge, law firms will respond by….wait for it….raising their hourly billing rates. Because that’s what firms do. Every year. Of course, it does not take an advanced degree to see the incongruity between the clients’ needs and firms’ response.
To make this statistic even more sobering, consider this: the amount of work that must be done by law departments with static or shrinking budgets likely has increased, not decreased. Why? Because the world is smaller, businesses expand their offerings and operating geography. Because that’s what businesses do. And when they do, the work for the law department increases. So demand for legal services increases while the budget to purchase legal services does not not. This is not good for law firms, especially large ones. Nor is it good for law departments.
Faced with this, 43% of law departments expect to decrease their overall use of outside counsel. This work will be redirected to law department attorneys. And, to be sure, there will continue to be efforts to shift work from higher priced lawyers to less expensive ones. Law departments will employ legal operations professionals to help improve operating efficiency within the law department.
The broad range of tools to reduce costs so more work can be done for the same amount is laudable. But it is not enough, because it it not sustainable. Once an efficiency is obtained, more work will still require more resources. After some point in time, the issue will not be efficiency, but the amount of work.
Because of this, leading General Counsel are focusing on prevention, how they can work with the parts of their enterprise that generate legal work to operate in a manner that requires less involvement of the law department or produces less work for the law department. A simple example is that improved contracting can reduce the number of contract diputes that the law department must handle. Prevention is the key for long-term sustainable success—instead of having to do more with less year in and year out, law departments would have to do less and therefore be able to invest the less they get more wisely, on issues that better serve the corporation’s interests.
How many law departments have a structured preventive law program? For those that don’t, what are the reasons they don’t? For those with a structured preventive law program, what metrics on effectiveness are tracked?
These are interesting questions, and I am not aware of any generally available data. Jeff Carr, Nicole Auerbach and I are conducting a preventive law survey for inhouse counsel. We encourage all in-house lawyers to participate. The results will be shared publicly.